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Australian domain market up in arms over Netfleet bidding scandal

The Australian domain community is still reeling from a controversy that emerged in late September. Haven’t heard? Then you’re not an Aussie. But if private bids are shared to attract competing bidders, then that matters everywhere.

The Context

In order to understand this upside-down story, let’s visit the “Land Down Under”. You’ll want to pack this background info:

Australia’s ccTLD is .AU – most commonly registered as .COM.AU.

Outside the USA, country codes are a significant part of the online landscape.

While international drop catchers such as NameJet, SnapNames, Pheenix, and DropCatch deal mainly in gTLDs, many ccTLD markets have evolved specialized auction platforms of their own.

For expired .AU domains, one of the most important venues is NetFleet.

Today NetFleet reportedly functions as a joint venture between founder Mark Lye and Melbourne IT, which is currently listed as the world’s 6th largest domain registrar.

Here’s the crucial bit: NetFleet auctions rely on sealed bids. Customers are told that “this is a blind auction” in which “you cannot see any other bids except your own”. However, “other clients may have placed a higher bid than you”. Anxious not to lose out but totally in the dark regarding other bids, you are encouraged to submit “the maximum amount you are prepared to pay” – let’s say $5000. If you’re the high bidder, then you’ll pay the full bid amount, never knowing if the next highest bid was $4900 or $800 or $75 or nonexistent. Meanwhile, if you’re outbid, then you’ll tend to bid higher in the future.

Nothing wrong with that. The various auction systems all have their pros and cons. Wearing a blindfold is frustrating, but avoiding bidding wars is a relief. Yes, in the dark you might fall short of other bidders or overshoot them. But as long as your bid is well and truly sealed, then you can safely bid without drawing further attention to the auction; and you can disclose your maximum budget without spurring others to outbid you. It’s a fair tradeoff.

Unless…

“Gobsmacked is the only way to describe this,” writes Ned O’Meara in his article that broke the news; and 77 comments from NetFleet customers reiterate the gobsmackery. Reactions varied. Some people were stunned:

This is such an incredible revelation that I am currently struggling to make sense of it all.

Others expressed cynicism:

[T]his calls into question every bid i have ever done, when did it start? we’ll never find out!

The very first comment lamented a “total breach of customer trust”.

So what are Australian domainers up in arms about? Well … Allegedly, a NetFleet employee contacted an end user who wasn’t bidding and, indeed, had never bid at NetFleet, telling him

‘that they had a bid from a big domain investor at $720 (and named the person); and assured him that if he was to bid $750, he would get the domain’.

Consequently, this buyer leapfrogged the high bidder; and he, rather than the NetFleet customer, took home the domain. That’s the allegation. By sheer stupendous luck, this end-user buyer hadn’t just been contacted by NetFleet; he had previously heard from a broker who offered to acquire the same domain at a lower price. So when NetFleet surprised the buyer with extra fees, he circled back to the broker … who told the high bidder … who told Ned O’Meara at Domainer.com.au … who told everybody including me … who am now telling you.

Facts

And is it true that NetFleet revealed what is supposed to be a sealed bid – both the amount and the bidder identity – to a competing buyer? To his credit, Jonathan Gleeson, general manager of NetFleet, responded to allegations right away. Gleeson conceded that “a legacy way to access the bid information in our system” had been found by “the sales person who dealt with this case”, but he maintained that the employee “was not shown this function nor instructed to use information from it.” Gleeson added, “I have now removed this ability …”

A telemarketer in his first week with Netfleet inadvertently accessed limited data on existing bids in our daily expired domain auction. It appears that he used that information as a benchmark to influence a bid from a third party on a single domain.

But the decisive claim by NetFleet is surely this:

We would like to stress that this is an isolated incident … An existing bid has never been used to influence a new bid from a prospective buyer before or since.

Between the informal reassurances on Day 1 and NetFleet’s official response 3 days later, several domainers vowed to boycott NetFleet “until the platform is changed to a transparent bidding system”. Their remarks can be found in a second article here.

Once NetFleet replied formally, reactions were mixed. The company’s protestations of an isolated mistake were met with skepticism by many. Personally, I made a detailed case for seeing NetFleet’s answer as a positive sign. Above all, I wished to draw attention to a bold way forward, which the company volunteered:

an independent audit of randomly selected data from past auctions to ensure the integrity of the platform.

You be the judge.

An article goes missing

When this NetFleet scandal erupted, an article covering the allegations was published by ITWire.com, which calls itself “Australia’s most read independent technology news source”. However, the piece was removed the same day, September 29. At first, domainers were tolerant of the vanishing. It was expected to reappear after giving NetFleet time to respond, and that seemed “fair enough”.

Yet the article hasn’t been resuscitated by ITWire, leading some to murmur that it may have been suppressed as a favor to Melbourne IT, part owner of NetFleet. Even so, a cached copy can be read in full. It would appear that everything in the missing ITWire article was substantiated 2 weeks ago by NetFleet itself.

Insults

The ugly epilogue to this story appeared online only recently, but it occurred the morning after NetFleet published its official response. Ned O’Meara, the domain investor who relayed the allegations about breach of privacy, claims he received the following text message (and more) from Mark Lye, founder of NetFleet:

I hope you’re ready for the truth Ned. Thank you anyway for trying to fuck my family business. I am relentless . * you can’t quote me on that you piece of family digging shit. My family hurts not that you would ever care.

In retrospect, it is ironic that this scandal broke when it did. Just days before, on the very same site, Ned O’Meara had featured NetFleet’s general manager, Jonathan Gleeson, as a podcast guest.

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Comments

Very interesting. I had not heard anything about that. I know nothing about any of the companies mentioned, and never owned a .au domain, but it seems that if it really was a one time incident effecting only one customer, it is not that big a deal. They should somehow make it up to that one customer, and prove to the press that it has never happened any other times.

If it was just a one off “accidental” incident, then I would agree with you Eric. Many long established domainers (in the .au space) like myself simply don’t believe it was a “one off” though.

David and Mark Lye started Netfleet – the owner was their private company Publishing Australia Pty Ltd (P.A). P.A owns thousands of domains. They sold 50% to NetRegistry some years back, and the JV became NetAlliance t/a Netfleet. After an “incident” occurred with them catching a valuable domain name for themselves on their new drop catching platform, the Aussie regulator (auDA) requested that David no longer be a Director and shareholder of NetAlliance / Netfleet. Brother Mark remained as Director, and holds 50% of the shares through a Trust.

But this is where it gets incestuous imho. Brother Mark still holds a 1/3rd shareholding in P.A.; P.A. until recently was bidding on Netfleet’s platform; David consults to the Netfleet board; David was until recently telemarketing for Netfleet. Did he have access to the back end and other bids? Could a fair minded person join the dots?

As someone who has spent 6 figures with Netfleet over the years, I am incensed. As are others. We have asked for an audit of log files and telemarketing records to substantiate what is the actual case. Given that the 50% partner in Netfleet is Melbourne IT (a publicly listed company on the Australian Stock Exchange), we hope this is forthcoming.

They found the domain, looked up an end user, and reached out all to get an extra $30 from $720 to $750? A one time thing wouldn’t make sense, but if you do that many times a day that can certainly add up.

The CEO says that he is relentless in the text. What is he even trying to say? Too funny.

Yes, this practice – IF ongoing – would have meant increased revenue for NetFleet in a few ways. It isn’t just an extra $30 from a new customer. Beyond that, it’s the psychological effect of losing auctions by a hair’s breadth time and time again – the pressure applied to existing customers.

If you’re a bidder placing a sealed bid, then you have a tough choice. Suppose you recently lost out at $720 to another bidder at $750, then you’ll consider stretching your maximum to $800 or more. And so on. Cynics will point to this as NetFleet’s incentive.

On the other hand …

Telemarketers at NetFleet may be paid commissions when their calls convert, or else good stats may be tied to pay raises or promotions. We’d expect sales staff to be incentivized that way, right? And, in that case, the difference between a new buyer at $750 or an existing bidder at $720 and may be all or nothing to the telemarketer. So the telemarketer might have an incentive to do this even without it being encouraged by NetFleet management.

I don’t know whether this practice was ongoing at NetFleet, happened sporadically, or was really just an isolated case. An unlikely chain of events led to this incident being discovered; so if domainers learned about an isolated incident, then they and NetFleet are indeed very lucky.

First Halvarez fake bidding. Then Rick Latona scams. Then Toby Clements acting as an escrow company takes money to pay others. Then Adam Dicker scams people out of website building fees and never delivers on his word. Now another bidding scam.

Does the industry need a watch dog group that oversees our own actions?

Maybe ICA should do that instead of whatever it is they’re doing?

Kudos to DNW for reporting on this. I didn’t know about it earlier either.

Very well written Joseph. I have been watching this unfold and it is very troubling. I know a few of the people that have been effected by this ‘isolated breach’ and it is nice to see that Ned O’Meara is spearheading a mouth piece for it on domainer.com.au.

Good to see your comment here Eric 🙂 I have a feeling that this is not an isolated incident… which Andrew hits on with his comment. The problem is big, but with the company not getting out in front of it and performing some crisis management as opposed to the way that they’re handling it now- which is ignore it and hope it goes away, well, is going to turn the big problem into a bigger problem which will ultimately call out the majority share owner, Melbourne I.T., to start calling some shots, but that will be too little too late if it’s not soon.

NetFleet needs to revert back to their transparent bidding model asap, after it shuts down to conduct an internal review.

It is so disrespectful of Netfleet to go about business as usual. They need to close down, then investigate. Publicly disclose their results. Make the necessary changes. And open up fresh and transparent. That is their ONLY chance at this point.

Great article Joseph, thanks for helping to expose these crazy times in Australian domain name dropping.

As Australian Domain Brokers and Domainers, we have not been able to just sit around and twiddle our thumbs as Netfleet dictates how the Australian domain dropping market will operate, especially once we had red-handed proof they were insider-trading, as exposed on Ned’s blog.

With over an 80% success rate of securing the drops in the Australian .com.au domain name market, it has been hard to handle their blind bidding platform as we have suspected the only reason the platform is “blind” is for their own many benefits, as is currently being exposed.

We are still calling for them to change their drop platform to a transparent system.

In Australia, we also have a crazy rule for our domain names, called the “Prohibited Misspellings List”. Basically, large corporations can complain to our governing body, auDA, and ask them to BLOCK certain domain names from being purchased. Some of these “misspellings” are actually real words, but for some reason these giant corporations are being given the green light to block certain domain names (that are real words) from being purchased. Netfleet seem to know this, and when the names are bought, they take the money, offer NO REFUND, and then sell the name again. Some people call this Double Dipping. More info here – http://domainbrokeraustralia.com.au/netfleet-auda-complaint-2014/

This is just the beginning.

Netfleet continue business every day like nothing is wrong. Catching (approx) 80% of the Australian drops. They ignore their entire customer base and keep taking new customer money, while affecting Australian domainers’ and domain brokers’ businesses by refusing to fix their current untrusted blind bidding platform, proven to be shady.

I’m sure there is much more to this Netfleet scandal to come out over the next few weeks.

Every day, Netfleet must be thinking “phew, I think this is over now.”

It won’t be over until MelbourneIT (50% shareholders in Netfleet) have stepped in and solved this problem once and for all. The obvious answers being to remove the Lye brothers and change the blind bidding platform to a transparent, trustworthy platform.

For those interested to see what happens next, it might be a good idea to continue to watch domainer.com.au

As such, this is not an isolated incident as Publishing Australia, Mark & David Lye and any other entities or people related or “technically unrelated” to them have been acquiring domain names using their own system for years and i would love to know how many.

I have also spent 6 figures with NetFleet, yet stopped using their platform about 18 months ago as I have no trust at all in netfleet, its directors and staff, and in April this year I moved nearly 2,000 domains from them to another registrar.

Lastly, I also want to know how much i have overpaid for my domains and how many times i have been gazumped using the NetFleet system.

The key thing to work out is whether this (disclosing private bids to elicit a higher bid from a third party) is, as Netfleet claim, a one-off mistake or, as others are claiming, part of a deliberate strategy to increase revenue. If it’s the former, then it’s obviously not a good thing but only one person was affected and if Netfleet can apologise make it up to them, then it’s time to move on. If it’s the latter, then it’s a very serious matter and calls into question the ethics of the whole company.

However, I believe it’s the first option – it was, as Netfleet said, a mistake.

There are 4 main reasons why I believe this.

1) It doesn’t quite make sense to run a silent auction but still disclose bids. If Netfleet are finding that disclosing other bids encourages people to bid higher than they would do otherwise, why not revert to an open bidding system – like a normal auction. Rather than just the odd person being encouraged to bid higher by this method, why not get everybody to do this? In the example above, if all bids were public, it’s highly possible the original bidder would have raised his $720 bid to $760… possibly leading to a bidding war.

2) It would be a massive coincidence that the only example we have of this happening is on the 4th day of employment of a new telemarketer. Netfleet haven’t employed a telemarketer for several years, then as soon as they do, this event unfurls. Coincidences do happen of course but this timing does add weight to the suggestion that it was just a mistake by a rookie.

3) Most of Netfleet’s regular customers are aware of what happened and it’s reasonable that many of them would start doubting previous bids where they had just missed out by a third party bidding above them. So, I would expect that many of these customers would have investigated historic sales to check whether this was the case. After all, the winning bidders’ details are in the public WHOIS. So, if this has been happening day in day out for years, it’s surprising that no one has been able to find another example.

4) By far the biggest reason is that it doesn’t make sense financially. Netfleet’s regular customer makes a bid of $720. Netfleet pay a telemarketer 20% commission to sell the domain for $750. Which means that Netfleet are left with $600. Why would any company employ a strategy that makes them less money and pees off their regular customers?

That mostly makes sense except perhaps they were prepared to loose money on some domains to push future bids higher through fear of loss so maybe it’s worth loosing $150 so the beaten guy bids higher on his next domain

It’s nice to see people only just hearing about this and trying to play devil’s advocate… but many of us can’t keep repeating ourselves and the shady examples across multiple blogs. I’d check out the last dozen blog articles over at domainer.com.au to get a better grip on this whole scenario…

We were the broker involved in this incident, and being honest it did not come as a surprise.

For the past 3-4 months we have been “crossing-paths’ with NetFleet telemarketers and in some instances outbid by small amounts. The recent event does raise doubt as to how long this practise has been going on behind closed doors…

Quite a few people have had an inkling that something sincester has been happening behind the scenes, but did not know for sure until this scandal was reported.

Let’s not forget this is a company with a trail of deceitful and dubious behavior.

Here is a snap shot of reported incidents over the years:

Dec 2013 – Strange bidding activity occurs on Netfleet’s rival drop.comm.au whereby early fixed bids seemly inflate the price. A buyer takes advantage of a lower “buy it now” price on Netfleet later in the day.

July 2013 – An exploit is found that allows the previous owner of a domain auctioned by Netfleet to reclaim full domain management access (registrant contacts, DNS etc)

April 2013 – eels.com.au disappears from the auction platform. When questioned, Netfleet claim they “decided to go with a buy now price for this one”. However, existing customers where not notified, there was no option for existing customers to BIN and they only introduced the functionality after being questioned public about the disappearing domain.

March 2013 – a customer “wins” a name on Netfleet, but is told two days later it was on backorder.

Feb 2012 – Netfleet is hacked and they inform customers that personal details including credit card details are comprimised.

Mar 2011 – Netfleet’s SSL certificate expires, and stays this way for roughly a week.

Feb 2011 – Netfleet breaches the .au regulator’s (auDA) code of practice by query the .au registry database for all of competitor drop.com.au’s customers contact details, and spams them with a promotional email (a volition of Australian Spam law)

Oct 2009 – Netfleet’s parent company NetAlliance (a partnership between Publishing Austalia and NetRegistry) utilises it’s own drop catching software to snap a premium geographic domain (townsville.com.au) and 3 other valuable names. Registrars are prohibited from this kind of behavour.

Oct 2009 – It is alleged Netfleet’s parent company Publishing Australia engaged the services of a lawyer, and bullying tactics to pressure a registrant into handing over a domain that was listed on Netfleet’s marketplace in error (domainname.com.au). An incorrect “buy it now” price was set, and Publishing Australia was able to buy the domain even though it was not public available on the Netfleet website at that time.

“Oh, I have already been contacted by NetFleet, I am already getting the domain so I don’t need your services”

“I just got a call from David from NetFleet and he is organising this for me”

“I already told the guy from NetFleet who called earlier, I am not interested”

“I just got a call from a David and want to understand what the difference between what you offer and what he is saying”

—

I did not think there was a question about them telemarketing. From my understanding the telemarketer in this instance had only been there less than seven days, but I was not aware they had made a statement he was the only and first telemarketer?

If so would seem strange as NF had contacted me on multiple occasions to discuss how we could prevent “crossing-paths’ with our clients.

@Andrew – from my understanding, Netfleet have employed telemarketers on and off over a number of years. As to what information they had at their disposal is something we are all interested in learning.

I have posed these questions directly to their new GM, and I have been given an assurance they will be answered. Apparently they are currently before Melb IT legal department.

Netfleet is a highly unethical company, that has been the case for as long as I can remember.

In 2011 they were reporting sales to dnjournal where the domain hadn’t even been paid for yet. I found out about this because I had a name of my own where the buyer agreed to buy through Netfleet but no payment or transfer had yet taken place. Despite that it was reported to dnjournal as a sale. It appeared they were doing this constantly, reporting names as sold where no payment or transfer had yet taken place. When I posted about it in the NP thread below Dnjournal to their credit promptly dropped Netfleet from their reports.

After that I got numerous abusive emails from David Lye always ending with threats to close my account. Instead of accepting their was an issue with Netfflet’s reporting his modus operandi was simply to try and turn it into a personal thing much like Mark Lye has done with Ned here.